2023 (7) TMI 473 - AT - Central Excise

Clandestine manufacture and removal - There was not manufacturing facility at the premises - noticee charged with Central Excise duty solely on the basis of certain declarations/ representations made to its customers and without it being shown that the said noticee is a manufacturer - penalty - HELD THAT - The show cause notice dated 24.12.2010, which was the first show cause notice in the matter, had been issued by primarily relying on the representations to various power supply corporations by the appellant firm that she was the manufacturer of the goods supplied by her. After referring to the statements given during the course of investigations by the appellant firm s authorized representative, the said show cause notice had relied on the stipulations and conditions of the tender documents/ contracts - The appellant firm had also clarified that the factory at the Belilious Road premises lacked the infrastructure to manufacture any transmission line accessory or hardware equipment and that there was no testing facility inside the said premises. Surprisingly, in the adjudication order dated 29.02.2012, it had been held that upon investigation by the revenue authorities, manufacturing facility had been found at the Belilious Road premises, which had also been admitted by the noticee no. 2 in his statement dated 21.05.2010 and that no contrary evidence could be adduced by the noticees. Such findings had clearly been rendered in disregard of the inventory dated 08.02.2010 drawn up by the Central Excise officers, which established the point of lack of manufacturing facilities. The appellant firm s defence was further supported by the Chartered Engineer s Certificate filed in the subsequent stages. The enquiry and investigations leading up to issuance of the show cause notices dated 24.12.2010 and 24.03.2011, though giving rise to suspicion against the appellant firm, were insufficient to justify the confirmation of demands. Penalty - Notice demanding duty for the period 2005 to 2009-10 was issued on 24.12.2010 - HELD THAT - Since they have not suppressed any information from the department, Notice cannot be issued by invoking extended period - It is observed that the Appellant has not taken any Central Excise Registration on the ground that the activities undertaken by them did not amount to manufacture. The investigation concluded that the activities amounts to manufacture and demanded duty by invoking extended period - the question of invoking extended period for demanding duty does not arise since the activities undertaken by the Appellant does not amount to manufacture - the question of alleging suppression and invoking extended period does not arise. Accordingly, penalty also not imposable on the Appellant as well as its Authorized Representative Shri Aayush Rungta. Appeal allowed.

Summary

Issues Involved:

1. Whether the appellant firm can be charged with Central Excise duty solely based on declarations/representations made to its customers without being shown as a manufacturer under Section 2(f) of the Central Excise Act.
2. Whether the demands of duty, interest, and penalty against the appellant firm and personal penalties against Shri Aayush Rungta are sustainable.

Summary:

Issue 1: Central Excise Duty Based on Declarations/Representations

The appellant firm, M/s. S. A. Enterprise, was charged with Central Excise duty on the basis of representations made to power supply corporations that it was a manufacturer. The firm contended that these declarations were made solely for business procurement purposes and that it engaged only in trading. The investigation revealed that the firm lacked manufacturing facilities and only conducted visual inspections at its premises, with other tests performed by third-party laboratories. The Tribunal found that the Central Excise Department failed to provide concrete evidence of clandestine manufacturing or procurement of unaccounted raw materials. The Tribunal held that suspicion alone cannot replace proof and that the appellant firm consistently maintained its defense of trading activities. Consequently, the Tribunal concluded that the appellant firm could not be charged with Central Excise duty solely based on the declarations made to its customers.

Issue 2: Demands of Duty, Interest, and Penalty

The Tribunal examined various aspects of the case, including the co-relatable purchase and sales records, duty paid on purchases, and the quantum of goods obtained through job work. It found that the appellant firm had provided sufficient documentation to support its claims of trading activities and that the quantum of job-worked goods was relatively small. The Tribunal also noted that the appellant firm had paid Central Excise duty on a substantial part of its purchases. Regarding the issue of non-existence of certain suppliers, the Tribunal found that the appellant firm had provided sufficient clarifications and that the Department's sweeping observations were unjustified. The Tribunal also held that the appellant firm had provided adequate evidence of the physical movement of goods.

Penalty

The Tribunal observed that the appellant had not taken Central Excise Registration on the ground that its activities did not amount to manufacture. Since the Tribunal concluded that the activities did not amount to manufacture, the demand of duty within the normal period was not sustainable, and the question of invoking the extended period for demanding duty did not arise. Consequently, penalties against the appellant firm and its Authorized Representative, Shri Aayush Rungta, were also deemed unsustainable.

Conclusion

The Tribunal answered the legal question in favor of the appellants, holding that the demands of duty, interest, and penalty against the appellant firm could not be sustained. The confirmation of personal penalties against Shri Aayush Rungta was also set aside. The impugned Orders-in-Original were set aside, and all appeals were allowed with consequential reliefs.